Search Results
Working Paper
Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom
An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002?06 U.S. house price boom. Contrary to this belief, we show that the house price and subprime booms occurred in different places. Counties with the largest home price appreciation between 2002 and 2006 had the largest declines in the share of purchase mortgages to subprime borrowers. We also document that the expansion in speculative mortgage products and underwriting fraud was not concentrated among subprime borrowers.
Working Paper
Social Network and Sentiment Contagion: Evidence from the Bitcoin Market
Using new data on social interactions and individual trading records in the Bitcoin market, we show that investor sentiment spreads across social connections. Investors systematically revise their beliefs about Bitcoin prices in the direction of average peer sentiment—even though that sentiment does not predict future prices. We document specific patterns in the diffusion of beliefs across networks, including evidence consistent with confirmation bias. Moreover, this social-sentiment contagion influences both individual trading decisions and overall market dynamics. Our novel measure of ...
Working Paper
Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom
An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002–2006 U.S. house price boom. By contrast, this paper documents a robust, negative correlation between the growth in the share of purchase mortgages to subprime borrowers and house price appreciation at the county-level during this time. Using two different instrumental variables approaches, we also establish causal evidence that house price appreciation lowered the share of purchase loans to subprime borrowers. Further analysis using micro-level credit bureau data shows that ...
Working Paper
Household Finance Shapes Political Participation: Evidence from Mortgage Refinancing
We study mortgage refinancing during the Great Recession, a period marked by a dislocated housing market, major government programs, and large potential gains from refinancing. Using quasi-experimental variation from movements in mortgage rates and eligibility cutoffs in HARP, we show that borrowers who refinanced between 2009 and 2012 were more likely to vote in the 2012 general election than otherwise similar borrowers who did not refinance. The increase in turnout is concentrated among households that experienced larger payment reductions and among politically independent voters. Our ...
Working Paper
Relieving Financial Distress Increases Voter Turnout: Evidence from the Mortgage Market
Borrowers who refinanced mortgages between 2009 and 2012, a period marked by mortgage distress and dislocated housing markets, but also falling interest rates, were more likely to vote in the 2012 general election than similar borrowers who did not refinance. We exploit an eligibility cutoff in the Home Affordable Refinance Program (HARP) to identify a causal relationship. Consistent with the resource model of voting, the effect of refinancing on turnout is strongest among borrowers with lower incomes and larger debt service reductions. Our findings shed new light on an important channel ...
Journal Article
The Federal Reserve’s Market Functioning Purchases
This article assesses the rationale, operations, and implications of the Federal Reserve’s market functioning purchases. The security purchases were introduced in March 2020, when massive customer selling of U.S. Treasury securities and agency mortgage-backed securities triggered by the COVID-19 pandemic overwhelmed dealers’ capacity to intermediate trades, contributing to a marked deterioration of market functioning. Purchases quickly expanded to over $100 billion per day as the Fed announced plans to buy securities “in the amounts needed” to support market functioning and the ...
Discussion Paper
Optimists and Pessimists in the Housing Market
Given momentum in house prices over business cycles, research on consumer beliefs since the financial crisis has honed in on the potential importance of extrapolative beliefs?myopically assuming trends in asset prices will continue. Extrapolation is frequently cited as a central reason for excessively optimistic expectations about future asset prices, featuring prominently, for example, in the irrational exuberance narrative of Shiller. Other influential work since the Great Recession has emphasized the outsized role that extrapolative optimists can have in bubble formation. In this post, we ...
Discussion Paper
Did Subprime Borrowers Drive the Housing Boom?
The role of subprime mortgage lending in the U.S. housing boom of the 2000s is hotly debated in academic literature. One prevailing narrative ascribes the unprecedented home price growth during the mid-2000s to an expansion in mortgage lending to subprime borrowers. This post, based on our recent working paper, “Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom,” presents evidence that is inconsistent with conventional wisdom. In particular, we show that the housing boom and the subprime boom occurred in different places.
Discussion Paper
Where Have the Paycheck Protection Loans Gone So Far?
The Paycheck Protection Program (PPP) is a central piece of the CARES Act. In the program’s first round, $349 billion in forgivable government-guaranteed loans were extended to small businesses to cover costs related to payroll and utilities, as well as mortgage and rent payments. The program opened for applications on April 3 and was oversubscribed by April 16. Because of its popularity, lawmakers passed a new bill replenishing the fund with another $310 billion and the Small Business Administration (SBA) started approving loans again on April 27. With a new round of PPP lending underway, ...
Discussion Paper
The Paycheck Protection Program Liquidity Facility (PPPLF)
On April 9, 2020, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the COVID-19 crisis. Among the measures taken was the establishment of a new facility intended to facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP). Under the Paycheck Protection Program Liquidity Facility (PPPLF), Federal Reserve Banks are authorized to supply liquidity to financial institutions participating in the PPP in the form of term financing on a non-recourse ...